ECB Monetary Policy
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The European Central Bank kept its deposit rate at 2.25% on Thursday, confirming the decision was unanimous though some members debated whether to raise rates, after the June increase that marked its first tightening in three years.
The governing council in Frankfurt held the main refinancing rate at 2.40% and the marginal lending facility at 2.65%, maintaining the range established last month. A second rate increase in 2026, likely at the September meeting in Berlin, remains on the table as eurozone inflation eased to 2.8% in June from 3.2% the previous month.
President Christine Lagarde noted the pause followed June's 0.25-percentage-point hike. The next policy meeting is scheduled for September 9 and 10.
European stock markets declined on Thursday as the European Central Bank kept interest rates unchanged, pausing after a June hike that brought the deposit rate to 2.5%. The STOXX 600 closed down 1.05%, with major bourses from Frankfurt to Madrid posting losses.
Markets opened weak ahead of the ECB decision, weighed down by Middle East tensions including the US-Iran conflict and the blockade of the Strait of Hormuz, which has pushed oil prices back above $90 a barrel. ECB President Christine Lagarde said inflation is at a good level, with core inflation in the European Union slowing faster than expected.
Financial markets anticipate between two and three more rate hikes despite the pause. Scorching summer weather across Europe may damage crops and push up food prices, while services inflation slowed last month. In corporate news, BNP Paribas rose 1.2% after reporting better-than-expected quarterly profit, while Shell fell 3.4% after missing earnings expectations.
European equities advanced on Wednesday as strong corporate earnings and dealmaking lifted sentiment. Iberdrola acquired an 80% stake in Finnish peer Caruna for 2 billion euros, while Banco Santander reported a record first-half net profit of 7.33 billion euros, up 15%. Moody's placed UniCredit on review for a possible ratings upgrade following its bid for Commerzbank.
Major European bourses closed higher, with London gaining 1.18%, Paris 0.87%, Madrid 0.97%, Milan 0.78% and Frankfurt 0.29%. In Milan, Saipem rose 2.14% after securing a $260 million offshore drilling contract in Ivory Coast, and TISG rebounded 15%. In Lisbon, CTT shares climbed 1.59% after receiving a non-binding expression of interest from Cajamar regarding Banco CTT, while Galp hit its highest level since May.
Energy and commodities also rallied. Brent crude gained 1.3% to $92.24 a barrel and gold futures rose 1.4% to $4,133. In Japan, the Nikkei 225 added 1.9% as June trade data showed year-on-year export and import growth.